P 050526Z DEC 07
FM AMEMBASSY CANBERRA
TO SECSTATE WASHDC PRIORITY 8671
INFO AMCONSUL MELBOURNE 
AMCONSUL PERTH 
AMCONSUL SYDNEY

C O N F I D E N T I A L CANBERRA 001721 
 
SIPDIS 
 
 
SIPDIS 
 
STATE PASS USTR/BELL; STATE FOR EAP/ANP, EEB 
 
E.O. 12958: DECL: 12/14/2017 
TAGS: ECON KIPR AS
SUBJECT: CSIRO'S PERSPECTIVE ON WIRELESS PATENT LEGAL 
STRUGGLE 
 
 
Classified By: ECON COUNSELOR E KAGAN, REASONS 1.4 B AND D 
 
¶1. (C) Summary:  The Commonwealth Scientific and Industrial 
Research Organisation's (CSIRO) ongoing defense in U.S. 
courts of its wireless patent against alleged infringers is 
unusual but not unprecedented.  CSIRO is open to negotiating 
a settlement of its case.  The $4/unit royalty that CSIRO has 
proposed is an opening figure that CSIRO does not expect to 
get in the end.  CSIRO holds hundreds of royalty-bearing 
patents dating back to 1954.  Although a part of the 
government, which provides most of its funding, CSIRO is 
officially independent of any Australian ministry and rarely 
receives direct orders.  End summary. 
 
¶2. (SBU) The proceedings in U.S. courts involving the defense 
of a patent related to 802.11 wireless local area network 
technology by the Commonwealth Scientific and Industrial 
Research Organisation (CSIRO) has attracted some media 
coverage in Australia.  On December 4, econoff met with Nigel 
Poole, Executive Director for Business Services at CSIRO, and 
Jack Steele, Chief of Staff, Business Services to get CSIRO's 
background and perspective on this case. 
 
BACKGROUND ON CSIRO AND PATENTS 
------------------------------- 
 
¶3. (U) CSIRO is an independent scientific research entity, 
government-owned and commissioned but not part of any other 
Australian governmental body.  About 60% of its annual A$1.1 
billion (US$960 million) budget comes from the GOA; the other 
40% is derived from fees for conducting studies (usually on 
the GOA's behest), royalties from licenses for CSIRO patents, 
and other sources.  As Poole explained, CSIRO has a mandate 
to "deliver outcomes" - applied research with an eye to the 
market.  CSIRO's work tends to have commercial applications 
or to meet community concern (e.g., its studies of 
environmental issues, fisheries, etc). 
 
¶4. (U) CSIRO is not new to the licensing technology game - 
its first license was in 1954 for an atomic instrumentation 
device it developed and patented, at a 5% gross royalty. 
CSIRO files about 100 patent applications a year, making it 
the biggest public-sector patent generator in Australia, and 
currently has about 700 royalty-bearing licenses.  Poole said 
CSIRO commercializes its patents for two reasons - to ensure 
that technology it develops is adopted, and to generate 
income as a way to show stakeholders that CSIRO is achieving 
returns on the Australian taxpayers' investment. 
¶5. (SBU) Once a decade or so CSIRO patents a "blockbuster." 
One example is the polymer banknote, used in Australia, 
Rumania, and other countries, invented in the 1970s and still 
licensed and used today.  A procedure for smelting copper is 
used in 37 global copper companies, smelting 7.5 million tons 
of copper worth billions every year.  CSIRO royalties bring 
in per annum anywhere from tens of thousands of dollars to 
multi-million dollars each.  Five or six are multimillion 
dollar earners (per year).  Often licensees of various 
products cooperated with CSIRO during development.  The 
transfer of technology from CSIRO is usually voluntary, and 
typically a company negotiates a commercial deal before 
commercializing the product.  The current WLAN case is 
unusual, according to our CSIRO contacts. 
 
CSIRO,S HISTORY OF WIRELESS PATENTS ISSUE 
----------------------------------------- 
 
¶6. (SBU) From a CSIRO briefing document:  "CSIRO in the early 
1990s developed a system to exchange large amounts of 
information wirelessly at high speeds within environments 
Qinformation wirelessly at high speeds within environments 
such as offices and homes (a Wireless Local Area Network or 
WLAN)."  CSIRO was granted a U.S. patent for this invention 
in 1996, and also holds patents for it in Japan and Europe. 
The patent is needed for certain 802.11 WLAN standards, and 
per CSIRO, almost all notebook computers and other consumer 
devices comply with these standards. 
 
¶7. (SBU) CSIRO tried to license this product.  In 2003 and 
2004, it became aware of products that it believed infringed 
on its patent, and sent letters to 28 companies asking them 
to please discuss terms for a license from CSIRO.  The 
companies did not accept CSIRO's offer. 
 
¶8.  (C) Poole explained that CSIRO then began to discuss a 
possible test case.  Although not legally obliged to, they 
consulted widely with the Australian cabinet, including the 
Minister for Science, the Attorney General, the Minister 
for Communications and Information Technology, and also with 
the appropriate counterparts in the then-opposition Australian 
Labor Party.  At that time, CSIRO also rejected the option of 
filing the case under the "Government of Australia" name, 
deciding that would be too provocative, and filed the suit as 
CSIRO. 
 
¶9. (C) Note: CSIRO had also considered filing a case with the 
International Trade Commission which if successful could have 
stopped the importation of devices with disputed technology, 
but Poole said they decided that was too drastic a step. End 
Note. 
 
¶10.  (C) Poole said that Buffalo, a Japanese-owned company, 
essentially "picked itself" for the test case because in 
their response to CSIRO they said they would never apply for 
a license and accused CSIRO of being "swindlers."  Poole said 
CSIRO was convinced of the merits of their case, and so chose 
the Eastern District of Texas because it has the reputation 
of being the fastest jurisdiction (he said companies 
frequently try to string out such cases).  The case was filed 
in February 2005, and shortly after five U.S. companies filed 
separate legal action against CSIRO in May to prevent it from 
seeking reasonable royalties.  The action by the five 
companies was dismissed, and an attempt to move the case from 
Texas also failed. 
 
¶11.  (SBU) In November 2006, the presiding Judge found that 
Buffalo had infringed on CSIRO's patent, describing the 
situation (according to our CSIRO contacts) as an "open and 
shut case."  In February 2007, CSIRO was granted an 
injunction against Buffalo, and Buffalo's attempt at a stay 
was dismissed by the Court of Appeals, which (per CSIRO) 
found "no merit" in Buffalo's case. 
 
¶12.  (C) Meanwhile CSIRO has filed suit against a total of 14 
companies for infringing its patent.  There has been a case 
management conference, where per CSIRO the judge advised the 
defendants to mediate because the patent is valid, and it is 
now just a question of royalties and damages.  CSIRO and the 
defendants participated in a court-ordered mediation session 
in mid-November in San Francisco, which was unsuccessful; one 
company offered a $10 million settlement, which Poole says is 
less than cost of CSIRO's legal fees. 
 
A LOT AT STAKE FOR CSIRO 
------------------------ 
 
¶13. (SBU) Poole and Steel said such cases in American courts 
are unusual for CSIRO but not unknown.  For example, CSIRO is 
with CIBA Vision (a U.S. firm) defending a patent related to 
an oxygen-permeable contact lens CSIRO and CIBA 
developed.  Before launching the WLAN case, they hired 
American patent valuation specialists to determine what would 
be a reasonable royalty.  They were told that roughly 5% or 
$4/unit was reasonable based on wireless patents, the utility 
of the invention, etc. 
 
¶14. (C) CSIRO says that the 14 defendants have sold 200 
million devices with 802.11 technology that relies on their 
patented technology, and that over the remaining life of the 
patent will sell another 600 million.  They also note 
that Cisco recognized the value of this technology and in 
1999 bought a CSIRO-established company that was established 
to exploit this technology for A$300 million.  Per Poole, the 
14 companies are "paranoid" that Cisco is working with CSIRO 
on this case, but they aren't involved. 
 
¶15. (C) Poole said CSIRO will not just roll over and give up 
on this - and he says they can't afford to.  They need to 
demonstrate to potential licensees and partners that CSIRO 
will be strong in defending patents as a way to maintain the 
value of all patents that CSIRO holds and licenses.  They 
Qvalue of all patents that CSIRO holds and licenses.  They 
said they do not ultimately expect to get $4 per unit - that 
is the starting point in a negotiation, and CSIRO wants to 
negotiate and settle.  Poole mused that perhaps some of the 
companies would want to settle before the Buffalo case goes 
to the Court of Appeal in May 2008. 
 
OTHER FACTORS 
------------- 
 
¶16.  (U) CSIRO is independent under a 1949 law, as amended in 
¶2007.  Because it is a government entity, the Minister for 
Science could order CSIRO to do something, but such instances 
are relatively rare.  The last "ministerial 
direction" to CSIRO (i.e., a direct order) was in 2001. 
 
¶17. (U) Steele noted that the difference in the size of the 
U.S. and Australian markets demands a different approach to 
licensing inventions derived from federal-government backed 
research entities.  Most of the benefits of a 
CSIRO-sponsored invention will actually accrue in the United 
States (population 300 million) and elsewhere rather than in 
Australia (20 million), so licensing patents rather than 
making them freely available is a way of capturing 
some of the benefits back for the Australian taxpayer. 
 
MCCALLUM